There is often a tendency to assume that things are going to remain the way that they are. Even if the laws which regulate it change.
I can remember, a couple of years ago, talking to a law professor about the time when the Housing Act 1988 first came in.
At that time, the ‘default’ tenancy type was the assured tenancy, which was very similar to the protected tenancy which preceded it under the Rent Act 1977.
He told me that they all assumed that this (ie the assured tenancy) was going to be the main tenancy type and that the new ‘shorthold’ tenancy would be the occasional exception.
How wrong they were!
As we now know, landlords avoid assured tenancies like the plague and are only interested in shorthold tenancies, where they are guaranteed the return of their property.
Then and now
At that time, the private rented sector was very small. The result, largely, of tenant-friendly legislation which put tenants rights above landlords.
The regulation started during the first world war (to protect homes for workers needed for the war effort) – at which time some 80% of households lived in rented accommodation.
However after that time, and particularly after the tenant-friendly legislation of the 1960’s and 1970’s (culminating in the 1977 Rent Act, which one of my landlord clients once described to me as ‘expropriation without compensation’), the private rental sector reduced dramatically.
No-one wants to invest in property if you can’t charge a market rent, or evict your tenants if they turn out to be unsatisfactory.
As it is now
The reason we have a buoyant buy to let market and private rented sector today is because the Housing Act 1988 made it more attractive to investors.
True, there are a lot of problems and not a few bad landlords who behave appallingly. However the vast majority of landlords are fairly decent and look after their properties well. The biggest problems we have stem from a lack of available housing, not a preponderance of poor landlords.
However, as pointed out by Mary Latham in her excellent post on Property Tribes recently, things do not always stay the same.
Most people invest in property because it gives a good income and if there are problems, it is reasonably easy for them to recover vacant possession of the property and sell up. So they feel safe.
The changes coming
However:
- The chancellor plans on taking away many of the tax advantages associated with buy to let meaning that in three years time it will be considerably less profitable
- Recent legal changes are making it considerably harder for landlords to use the section 21 ‘no fault’ ground for possession
- New regulations are being introduced, and stiffer penalties. For example the new Immigration Bill is planning on bringing in custodial sentences for landlords who breach the right to rent check regulations.
What long term effect is that going to have, do you think? Is it going to encourage investors to invest in buy to rent property, or scare existing landlords into selling up while they still can?
So where are we going?
The fact that we have a buoyant buy to let sector just now does not mean it is going to remain that way. People tend to act in the way that promotes their best interests. So, as Mary Latham has predicted, there is a strong likelihood that the private rented sector could shrink considerably over the next few years.
Is that what we want? Because there has been no debate about it.
Indeed many landlords voted for the Tories because they thought they would best serve their interests. Maybe they are regretting it now.
Landlords selling up and a shrinking private rented sector is not going to help tenants either. There will be fewer homes for them to rent. And probably higher prices.
Nobody knows for sure what is going to happen in the future and there are always surprises. However, I think that it would be foolish to assume that the status quo will continue.
Social changes come about slowly and it will be a while before we see the real effect of the legal changes that are being made.
They may not be what you think or want.
interesting piece Tessa.
Like you I have been around housing for eons. The early 80s in fact. Well before the Housing Act 88 and I remember what to was like.
We need more houses, that is true, but many commentators point to the fact that we already have loads, we just don’t use them effectively. Prof Danny Dorling is particularly emphatic on this point in his book “All that is solid”.
We also have properties bough as investments by Chinese and others which lie idle.
You pointed out this week an article in a Cambridge Newspaper about foreign investors denuding housing stock in that area and we have a London mayor who organises property shows in Singapore to sell off London real estate.
There are numerous ways that a person can occupy property, from home ownership and tenancies, through communes, self build etc and I think the either or debates on PRS v. Social v. ownership is too narrow.
If there are 100 houses in an area and landlords feel too squeezed by legislation to want to stay in business then they cant move those 100 houses from Tottenham to Dundee. They will still remain to be used by local residents in some way (Presuming they aren’t snapped up by foreign investors), whether that be through some form of shared ownership or being bought up by a council or housing association.
The system would merely change to suit the conditions of the time, just as was the case with the 88 Act.
If the system did not change then homelessness would continue to rise exponentially to a point where government cannot massage the figures as it does now.
I have been involved in the market since 1981 where we became accidental freeholders to a block of flats.We then grew against the background of our other business.We now have over 25 properties, enough for one person to run.
When my mother ran this side of the business it was so simple, an odd hic up but generally no probems, you could get people out when needed without long expensive legal battles. If the rent was not paid then they moved out. She ran it as a hobby.
Since I have been in charge (3 years) there is so much more paperwork, so many more requirements from both the Tenant and the Landlord. My time has to be paid for which raises the rent. I have to have a rainy day fund, for the times when getting no rent while i wait for the council or housing association to house them, plus ever increasing costs to evict. Housing benefit is paid to the Tenant unless you fight tooth & nail, it is paid at least six weeks in arrears, if they overpay then i am responsible for paying it back.
Now they are bringing the right to rent rules which means i have less people to rent to. I have rented four properties in the last four weeks, three lots i will not be able to rent to when the new rules come in, they do not come from other countries but they do not have all the paperwork needed to prove they have the right to rent.
We will continue as we are a Ltd company and the new tax changes will not effect us.If we closed down most of our sales would mean capital gains tax in large amounts as most of our properties where brought 2000 or before at half or less of the price now.
I think present Landlords will decrease vastly in the next few years especially single property Landlords as the Laws and rules have become untenable for them.
As to Rogue Landlords, i agree there are some that need closing down and they treat their Tenants badly.
But we do not want to lose the Landlords housing our worse off people.
In our area we have what most people would call a Rogue Landlord, he rents out by the very basic room including bills, he houses the homeless and people that other Landlords would not touch, many are paid by housing benefit,and the rest of the dross.But if he was put a stop to many more people would be homeless and have no oppitunity to rebuild their lives.
“many are paid by housing benefit,and the rest of the dross”
…..nice!
I predict more long term empty homes where people are working away from home for a few years, but are not willing to take the risk of renting them out.
I also predict that developers will find it harder to sell “off plan” so will find it a lot header to fund new developments.
Also properties that need work to bring them back into usage in areas where most people cannot qualify for mortgages will be left empty.
Bet yes @Ben, in London every home a landlords sells, will be brought by a “home owner” so it will not affect the supply of housing. But outside of London (and other high price areas) it will effect supply, but slower than most landlords claim.
“In our area we have a rogue landdlord..many are paid for by housing benefit..”
Here’s a thought..just why exactly should British tax payers be paying public money in the form of housing benefit to unregulated landords,in order for them to profit? Why shouldnt there be regulations on something which is a basic human need? Why exactly should we be renting properties to people who are potentially in the country illegally..and subsequently complaining it makes things “less profitable”..in any other industry or business there are regulations and standards to abide by.
The housing market and society will change..you can bet that.There are now hoardes upon hoardes of the under 35s who will never be able to buy…from the middle classes through to the working classes.As they grow older they will begin to out number those who own properties and buy to lets.
Most societal revolutions begin when the middle classes can no longer obtain what they have come to expect.
In my experience it is the poor tenants that are British that are lease likely to have any documents to prove they are allowed to rent in the UK, as they don’t have passports etc.
Also I don’t see how anyone can claim that landlords are not regulated, given the number of laws the tell landlords what to do. The issue is not luck of regulation, it is that there is no will (or funding) to enforce the current regulations.
I’m a landlord, but I don’t get this hand wringing over rules and taxes which are perceived as a criminal act against the personal well being of landlord’s bank accounts. The PRS is a business, just like any other, where you are providing a service in return for money. You’re not doing anyone a favour and no-one is expected to do you one. Just because you think you play a good game doesn’t entitle you to be successful. Business is inherently risky. People can CHOOSE to adopt a higher or lower risk strategy, but again, that doesn’t guarantee success.
It obviously helps in business if you thoroughly understand the rules of your sector. I personally don’t find PRS legislation onerous at all. So you have to serve the right documents at the start and protect a tenancy deposit! Wow. So you have to keep on top of your maintenance. That’s the service you offer! You wouldn’t expect an airline to carry out zero checks to protect your safety whilst flying.
As for rent arrears, it is no different to any other bad debt. Get insurance to cover that if it creates an unacceptable risk to your finances. The only reason landlords are vulnerable to non-payment is because of the delays in the court process caused by a failing court system, but this is caused ultimately by shortages in the funding of public services, but that is the same across the board, e.g the NHS.
In short, those feeling the greatest sense of uncertainty (and the ones complaining the loudest) seem to be the amateur investors who have done the least amount of homework… Emotional outbursts about the moral rights and wrongs of others is a complete waste of time. Play the game according to the rules, treat it as a business and not a hobby, don’t be so greedy if you are feeling overstretched and chances are you will thrive.
In any business or retail environment there must be room for large companies and small, independent enterprises. This gives the consumer more choice (hopefully) and makes the market more healthy. This is utterly obvious to anyone at all except for George Osborne who seems to think that it is acceptable to charge an extra 3% stamp duty on small buy to let investors and to exempt companies who have portfolios of more than 15 properties. I, as a small landlord don’t want to have to club together with other landlords when in the process of purchasing property under a kind of notional umbrella.
There will always be people who need rented accommodation because home ownership does not suit them and people who cannot afford to buy their own home. They deserve to have a choice of who they rent from.